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Different Sources Point to Local, Serious Delinquency Similarities

Data indicate the renewed mortgage industry urgency to encourage short sales and other preforeclosure solutions that help control bank repossession rates is not necessarily shared by buyers in areas where foreclosures are more affordable.

An updated report by Foreclosure-Response.org that reviewed delinquency data from March 2009 to June 2010 for all 366 U.S. metro areas reveals that “the severity and trajectory of the problem vary dramatically across the nation.”

Jointly created by Local Initiatives Support Corp., the Urban Institute and Center for Housing Policy, Foreclosure-Response.org compiles a unique report on seriously delinquent mortgages, which include loans 90 days or more past due or in the foreclosure process.

While as expected “the most rapid increases” in mortgage delinquency occurred in metro areas where home prices are much higher than local incomes can afford, according to senior fellow at the Urban Institute Tom Kingsley, serious delinquency rates are also rising rapidly in metro areas within Colorado, Washington and Utah “where delinquency problems have been moderate so far."

By the end of the third quarter, according to RealtyTrac, foreclosure homes accounted for 25% of all U.S. residential sales in the third quarter of 2010.

And while it may not be clear to what extent property discounts affected these sales it is a fact that properties in some stage of foreclosure sold for much more affordable prices. The average sales price on these properties was over 32% below the average sales price of properties not in the foreclosure process—up from a 26% discount in the previous quarter and a 29% discount in the third quarter of 2009.

Lender Processing Services reported that by the end of November the total number of delinquent properties not yet in foreclosure, reached 6,925,000, of which 4,768,000 were 30 or more days past due and 2,161,000 up to 90 or more days delinquent.

The LPS calculated U.S. loan delinquency rate, or loans 30 or more days past due, decreased 2.9% month-over-month to 9.02% and a more significant 15.6% year-over-year.

Another 2,157,000 properties were part of the foreclosure presale inventory in November bringing the total U.S foreclosure presale inventory rate to 4.08%, increasing 4.1% on a monthly basis and 8.0% in an annual basis.

The most recent report from the Jacksonville, Fla., based provider of loan-level analytics based on a database of nearly 40 million mortgage loans reaffirms that issues vary both state by state and within each state especially in problematic states.

Florida that leads the states with highest percentage of foreclosures and delinquencies as a percent of active loans is one of those states that still are a long way from a significant recovery. The list of top states with noncurrent loans following Florida includes Nevada, Missouri, Georgia and New Jersey, while California is getting more mixed reviews.

Kingsley argues that even if the foreclosure inventory in California increases as delinquent loans move into foreclosure, “but there is reason to think the problem may be stabilizing.”

Seven of the 25 metro areas with the highest serious delinquency rates in June 2010 were in California. As compared to the metro areas on the top 25 list from Florida, the California metro areas have lower foreclosure rates but higher rates of 90-plus-day delinquencies. Consequently, foreclosure rates may rise in the short term in these California metro areas as loans move from delinquency to foreclosure.

According to Kingsley there are signs that the foreclosure crisis may ultimately be stabilizing in California. The overall rate of serious delinquency—a combination of loans in foreclosure and loans 90-plus days delinquent—for the California metro areas grew only modestly between June 2009 and June 2010.

RealtyTrac’s foreclosure sales data also show Nevada, Arizona and California posted the highest percentage of foreclosure sales.

In Nevada, foreclosure sales accounted for 54% of all sales in 3Q10, even though the rate dropped from nearly 56% in 2Q10 and 62% in 3Q09. Both preforeclosure sales and REO sales in Nevada were down from the previous quarter and from the third quarter of 2009. Nevada properties in some stage of foreclosure sold for an average discount of 19% in the third quarter.

In Florida foreclosure sales accounted for 37% of all sales, while in Massachusetts, Michigan, Georgia, Oregon, Idaho and Illinois they accounted for at least one-quarter of the total.

All of these problematic states, however, are not seeing the same patterns.

In Arizona where properties in some stage of foreclosure sold for an average discount of 25%, foreclosure sales were at 47% of the total in 3Q10, compared to 27% in 2Q10 and 32% in 3Q09. So they increased apparently because more buyers took advantage of the favorable buyer’s market.

Californians on the other hand would not rush to buy foreclosure sales as shown by the total amount of these sales in the state which decreased compared to previous quarters—probably because the state’s economy has seen improvements at the local level.

In the third quarter foreclosure sales accounted for 40% of all sales in California, “the third highest percentage nationwide.” Even though properties in some stage of foreclosure sold for an average discount of nearly 39%, the number of sales decreased from 43% of all sales that they represented in the previous quarter and nearly 52% in the same quarter of 2009.